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How to use volume in your trading
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How to use volume in your trading

  #171 (permalink)
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Hi Cunparis

A great thread. Thanks very much

You've not mentioned LV much. Is that because you are mainly looking for HVCs and only use LV to identify low volume pull backs?

David

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  #172 (permalink)
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cunparis View Post
I never used range charts until recently, due to their popularlity on this site. I tried it for a while and went back to tick charts and then more recently went to 5min charts. So I can't really say much about volume on range charts but you can give it a try.

What I don't like about range charts is that you're missing important information with the relationship of the open & close. I especially look for doji bars and trend bars. Doji = indecision / trading range. Trend = one side is in control. I don't see that as clearly in range bars. Now some can say this relationship is somewhat artificial because it's determined by # of ticks or time. I agree with that. But for me it's ok.

So be my guest to try it out and post some charts. Try comparing a 5 min with a range chart. Could be interesting.

Hi Cunparis

I was curious about your thoughts. The range bars offer me something I like, but I don't see volume working. Was just curious about your thoughts.

Thanks for the input.

Pete

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  #173 (permalink)
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David View Post
Hi Cunparis

A great thread. Thanks very much

You've not mentioned LV much. Is that because you are mainly looking for HVCs and only use LV to identify low volume pull backs?

David

HVC = professionals
LV = amateurs

not 100% true but you can think of it like that. I follow the pros (I try to at least hehe) so I'm looking more for HVC. If I see LV I try to make sure I'm not on their side.

I switched from 699 tick to 5 min for ES and I haven't seen as many LV bars. But I have indicated some in my latest charts on the preceding page. LVPB & LVT are good patterns.

For example brooks talks about fading a swing extreme after a trendline break. HVC can show me where the professionals are and if I see the PB leading up to a LVT of the swing extreme then it's a good fade. This is an example of adding volume patterns to other setups to increase the probability.

My goal is not to make a lot of points on ES. My goal is not to have a losing day. To meet that goal I try to avoid any risky trades.

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  #174 (permalink)
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Interesting pattern today. I was long at the moment, with a stop well under the support. If the support is broken then I'll be short.

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  #175 (permalink)
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Here's the result:

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  #176 (permalink)
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hi Cunparis,there is a fair bit to read re volumecandles,but i,ve failed to find a SB.or a platform that supports it! Updata do but the cost is out of the question,does any one know of a site that supports it?

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  #177 (permalink)
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charts

http://www.agileinvestor.net/Inview%2045/Technical_Analysis/candle3_col.png
http://www.agileinvestor.net/Inview%2045/Technical_Analysis/candle4_col.png


Last edited by cunparis; September 21st, 2009 at 03:47 PM. Reason: fixed broken link
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  #178 (permalink)
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fat is your candle? - Technical analysis
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In our occasional series on technical analysis methods, we take a look at Candle Volume indicators.
Despite the daunting name, these are a common sense way of sifting meaningful price movements from mere anomalies - and can also be useful indicators of a time to get in or out of an investment.
Lee Wood illuminates...
It’s well known that we blend technical with fundamental analysis methods to aid our investment process. Accurate timing at the level of the whole market requires use of trend and Fibonacci analysis, explored in our previous issues. The market, however, is comprised of thousands of individual stocks, and knowing which to choose, and, more particularly, when to take profits from an overheating price, requires additional information.
Price movements in themselves may not be enough. It is the balance of buyers and sellers which sets a price at any point in time. But how safe is the data?
At any instance the price of an asset in a free market is, in effect, an opinion poll. Any statistician or opinion pollster will tell you that the larger the sample, the more sound the data. Ask one person how they’ll vote, the data is useless. Ask the whole population and you have a General Election.
In stock market terms, this relates to the quantity of shares traded, or "volume": The more buyers and the more sellers there are, the more meaningful the price action is. It makes sense, therefore, to relate price to the volume of shares traded.
Let’s look first at "Equivolume". Equivolume was invented by Richard W Arms Jr., and introduced in his book Volume Cycles in the Stock Market. It is a method of combining price movements and volume to provide a better indication of not only the direction of a share price, but whether the market believes the movement or not. An Equivolume bar, indicating one day, appears as follows (below) :-
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The bottom scale of the chart is based on the number of shares traded, or "volume". The bottom axis of the chart, therefore, has no fixed scale, in contrast to normal charts, where the scale is commonly set by the date, or other straightforward and fixed reference.
The shape of the Equivolume box provides a good indication of supply and demand of a security. A narrow bar indicates a day with little volume. The price movement on that day, therefore, lacks "votes". It’s an opinion poll taken from a below-average sample. An "oversquare" day, like the one to the right in the example above, indicates the one where the price remains fairly static, but with heavier than usual volume, and tends to indicate a battle between buyers and sellers at the current price – this signal can often show a change of trend.
A "Power" bar is one where the volume is large, but the price also moves substantially, showing strong commitment from either buyers or sellers, depending on the movement of the share price.
Below left is the chart of HSBC in October and November 2002. The early stages show unreliable trade from the point of view of price analysis. The price is moving around a lot, and though mainly upward, the narrow shape of the bars reveals that there are not a lot of buyers or sellers to set the price. In mid-November, however, the sellers attack, and battle is joined for two days on big volumes. The outcome of this conflict will tell us who has more resolve. After the second day, the sellers start to retreat. Volumes die down again, and the price moves steadily upward again.
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Candle volume is simply an extension of Equivolume, or to be more precise, a retraction of it.
The difference lies in where the vertical, or price element of the box is described.
Share prices are commonly reported in the newspapers at their "closing price". This is the price at which the share ends the previous day. Obviously, the price it starts the day at will probably be different. This is the "opening price". During the trading day it is also the case that the price may move above or below both the open and closing prices. These are the "intra-day" prices, and the highest and lowest of these are called, not surprisingly, the "intra-day high" and "intra-day low".
Straightforward Equivolume uses the intra-day highs and lows to set the upper and lower box lines. Whilst this is entirely valid, it does make it more difficult to divine the price action at open and close. (The open and close are there, in fact, as small spikes off the sides of the box, but not immediately obvious. When you have to look at a lot of charts in a day every little helps!)
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Candle Volume differs in that it uses the open and closing prices for the box, but then adds the intra-day highs and lows as a vertical line in the middle. Compare it to the "straight" Equivolume chart on the previous page to see the difference.
The reason these charts are called "Candle Volume" will, I am sure, now be clear. The result looks like a candle, lending a clear view to price and volume, and the share’s range through the day.
The particular use of both Equivolume and Candle volume is in helping to identify changes of trend in a price. Commonly, as a share reaches the end of a period of rapid price movement, the volume traded each day will decline. Either buyers or sellers reach exhaustion. The opposition will move in, and, very often, will lock horns for a day or two before the trend reverses. This results in big volume, or a "wide" day on these charts. Which way the price then moves is thus meaningful
Volumes vary much more widely in medium sized, and smaller company shares. Looking for "oversquare" days, therefore, can be a useful indicator of when to get into (or out of) these more volatile assets.
Let’s look at oil sector tiddler, and OPUS Balanced Portfolio member, Dana Petroleum Plc, and examine the trend change signals it gives off (chart below);
Here, the candle volume indicators have given a clear signal of when to take profit. Even if the chance was missed, the second peak is revealed as being established on very thin volumes, making it unreliable. The failure to break into new high ground is the clearest signal yet to take profits in the short term.
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The OPUS View
Equivolume and Candle Volume are most useful for extremely short-term trading, and do not particularly help the portfolio investor taking a slightly longer view. Really out-of-line volume situations are also rare on bigger companies, though they should be paid attention to when they do occur. As one of an arsenal of analysis techniques, however, volume analysis is useful for timing entry and exit points.
As with every Technical Analysis technique, it should not be used in isolation, and is far from infallible, but combined with other methods such as Fibonacci and Relative Strength, one can obtain a further clue as to the likely direction of a share price.
Lee D Wood
leewood@barnesmarsland.co.uk

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  #179 (permalink)
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mroalan - I appreciate you posting about these candle volume charts. If you don't mind, I would like to suggest that you create a new thread about these charts so that we can keep this thread dedicated to the volume patterns, mainly HVC & LV that are detected with the free volume patterns indicator. This way everyone can use the same indicator and the same charts and we can all be on the same page. Thanks for your understanding.

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  #180 (permalink)
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yes i see what you mean,no probs.

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